Late last week, I had the chance to peruse Hannon Armstrong’s SEC filing for their upcoming Initial Public Offering (IPO), which is expected to start trading next week on April 18th. The company is in the business of financing energy efficiency and other clean energy projects, and hopes to raise as much as $245 million.
Since 2000, Hannon Armstrong has provided or arranged over $3.9 billion of debt and equity financing deals for around 450 sustainable infrastructure projects. To date, most of these assets have been sold to other investors. Out of the $3.9 billion in financing deals they have arranged, Hannon Armstrong currently holds less than $200 million of these obligations on its balance sheet. The company plans to use the IPO proceeds to increase its investments, and has already identified $110 million of financing opportunities that can be closed within 45 days of the IPO. Additionally, the firm has secured $400 million of credit capacity from Bank of America to finance projects.
Our understanding is that the majority of the company’s projects are energy efficiency retrofits for the federal government or municipal properties, universities, schools or hospitals – often referred to collectively as the MUSH market. These properties tend to be attractive to lenders because the owners generally have high credit quality and the buildings are not generally mortgaged.
In their filing, Hannon Armstrong also discussed plans to do more financing deals for private sector customers. Historically, this has been difficult to do as most private sector properties have large mortgages, and energy efficiency financings have not been attractive to lenders from a credit perspective. An On-Bill Repayment (OBR) program can solve this dilemma by attaching the repayment to a property’s utility bill, as the obligation will survive a change in ownership, including a foreclosure. As OBR programs roll out in various states across the country, I expect that we will see increases in financing for energy efficiency projects in the commercial building sector.
I am excited that we continue to see innovative methods to finance energy efficiency projects and wish continued success for Hannon Armstrong and its competitors.